Ust Inc - Case Question

Session 9: UST Case1. What are the primary business risks associated with UST Inc.?What are the positive attributes of UST Inc.? Evaluate from theviewpoint of a bondholder.2. Why is UST Inc. considering a leveraged recapitalization after sucha long history of conservative debt policy? Should they make thischange to their capital structure?3. UST Inc. has paid uninterrupted dividends since 1912. Will therecapitalization hamper future dividend payments?

Risk to debt-holders?

How likely is the firm to go bankrupt?

- brand name and market position: every good, people are addicted to them

- cash flow generation: stable

- cyclicality : very stable

- product diversification:

- geographical diversification: U.S. And China

- litigation: natural of the product,

It is not likely to go bankrupt

If they go bankrupt,

Interest payments

Use the data from exhibit 3 to forecast income statement in 1999

1998 sales were 1423.2 assume 5% growth, in 1999 still. Be 1494.2

Forecasts for 1999

would you expect the price (or range of prices) to be?2. How do your answers change if the proportion of good cars is 20%? Explain your answerintuitively.3. Suppose now that in this market there are also excellent cars. The value Buyers and Sellersassign to excellent cars are SE = 16; BE = 20: If the proportion of good cars is 25% and theproportion of bad cars is 25%, do you expect excellent cars to be traded in the market?Question